Is it true that forthcoming IPOs like PharmEasy and OYO are rethinking their IPO valuations due to the sharp fall in digital IPO stocks in recent past?

With a slew of digital IPOs on the anvil, there is very likely going to be a drastic rethink on the size of the IPOs as well as the valuations. Beyond Paytm and CarTrade; even good performers post listing, like Zomato and Nykaa have taken it on their chin. This is likely to make a lot of forthcoming IPOs like PharmEasy, OYO, Delhivery etc to become more pragmatic and relook at their valuations, pricing and also the size of their IPOs.

PharmEasy is already planning a quick readjustment of valuation downwards. PharmEasy (owned by API Holdings) is yet to get approval from SEBI for its IPO, which is likely to be totally a fresh issue. The present SEBI rule is that if the size of the issue is lowered by 20% for fresh issue and by 50% for OFS, fresh DRHP has to be filed and fresh SEBI approval sought. This concern is clear from the falling GMP or grey market premium for digital stocks.

Here is what pragmatism mean in this context. For example, PharmEasy was valued at $5.4 billion in the last round and was expecting a valuation peg of $7-8 billion in the IPO. That does look impractical now. PharmEasy would perhaps be happy to get valuations of around $5.4 billion in this IPO. The same story applies to OYO Rooms also, which also seriously plans to trim its valuations as well as its issue size.

Now OYO Rooms is a more complex story. It was originally seeking valuations of $9-12 billion but might settle for $7 billion thereabouts. This is actually even lower than the valuation OYO got in its last fund raising round. However, the situation has changed drastically since hotels and tourism, where OYO operates, has been one of the worst impacted due to being a contact intensive sector. That broadly explains lower valuations.

The one thing that is going for PharmEasy is the dominant status in the online pharmacy industry, where it owns 50% of the market in terms of GMP (gross merchandise value). This compares favourably with 16% market share for Tata 1MG and 15% for Reliance NetMeds. It is expected that PharmEasy will sustain its dominant market share even after horizontals like Reliance, Tatas and Flipkart enter the scene. But that may not help too much for now.